Today’s Price vs. Bubble-Peak Price

In CA the average home ownership has been between 7 to 10 years.  So, now many home owners who, want to sell their homes, are having unnecessary hesitations. Their comments go something like this: “THAT’s all we can get for our house?! But we paid $X for it 10 years ago.  We’ll lose money if we sell at today’s price“.  So I ask: “Did you pay cash for your home?” When the home owners say: “no, we financed it” we have the following conversation.

Since you did not pay cash for your home, what you DID pay was principle, interest, taxes and insurance.  THAT’s what you have paid for your home, not the ‘Sales Price’ back then“.

Here is an example:  If they agreed to a sales price of $700,000 in 2006 and got a 90% home loan at 4.0% then what they have actually paid for their home looks like this: $198,293 principle (including the down payment) + $199,650* interest + $87,528* property taxes +$9,600 for insurance.  What they really paid was the total of $420,405 (*after income tax advantages).

So, if today’s market value is, say, $600,000 they didn’t really lose $100,000, they will actually get all of what they DID pay and another $179,595 ($600,000 – $420,405). That $179,595 is a 42.7% return on their investment!  Wow! What a different way to look at it.

Of course there were other expenses such as private mortgage insurance for a couple of  years, repairs and upgrades.  Still what they have actually paid for the home is considerably less than their original Sales Price.

Make sense?  If not, text, email or call me.  I’ll be happy to demonstrate your actual gain.



Smart Home Purchase = Good Investment

home's appreciationAfter nearly 8 years Americans are once again considering the purchase of a home as an investment.

As in all good investments you want to “buy low and sell high” with regard to your home.  As this article points out there are 4 key considerations when buying a home with “investment” in mind:  Don’t buy the nicest home in the neighborhood; look for a home which needs a little T.L.C.,; of course location is very important and plan on living in the home at least 5 years,.  10 years is even better.  Regarding location, look for a home in a nearby suburb of a job-rich metropolitan area and, off the main thorough fairs.  Morgan Hill, Gilroy and Hollister, CA for example, are ideal communities near the San Jose and Silicone Valleys.

The other side of the home buying equation is the financing of it.  With the goal of living there at least 5 years it actually pays to buy down the interest rate of your home loan.  If you pay 1.5 to 2.0 points (percent of the loan amount) you should be able to lower your rate by .25% for the term of the loan.   This little tax deductible investment will repay itself within 3 – 4 years through the savings in house payments and will save 10s of thousands of dollars in interest over the life of the loan.

Lastly, design your budget to allow an extra payment toward the principle loan amount.  Just an extra $100 or two paid with your regular payment each month will reduce the number of years you will pay on the loan and builds equity much faster.

Buying smart imitates the investment growth and the extra payments on points and principal will quickly grow your equity.  When time comes to move up or, out, you should have a sizable profit from your home’s investment.

What’s your ‘buy low sell high” success story?



Rent vs. Buy: Cheapest?

We know what the acronym A.S.S.U.M.E. really means, right?  Here is a good example: “Renting is cheaper than buying“. Simply assuming that paying rent costs less than making a house payment is ignoring many factors: the interest portion of the principle & interest and, the property tax portion of a house payment are tax deductible.  Appreciation also needs to be placed in the equation: rent payments will go up; home values (typically) go up while the house payment remains unchanged.

Would you believe this holds true even in San Francisco, Oakland and San Jose, CA?  As the attached article demonstrates, these and other cities have home purchase costs lower than paying rent.  In San Jose, CA for example, the difference is 9%.

If the rent vs. house payment debate wins in these large, metropolitan cities, we can assume (oops, here we go again) that the more affordable cities like Morgan Hill, Gilroy and Hollister, CA will have an even bigger difference favoring the purchase of a home vs. renting someone else’s.

Why not take a challenge?  Text or email me your city and the amount of rent you pay.  I will give your own comparison.

Manufactured Homes: Good Investment?

The term: “Manufactured home”  includes two types of homes: Mobile Home and a Modular Home

Mobile homes are delivered to the sight on their own axles and wheels and generally have the wheels remain in tact.  It is not real property and you pay the DMV vehicle taxes on it.

Modular homes are pre-built homes which are delivered to the lot on flatbed trucks, hoisted onto a permanent foundation and bolted down.  Therefore the Modular home becomes ‘real property’ because it is affixed to the land.  You pay regular property taxes on a Modular home, according to Prop. 13, as you would on regular, or, “stick-built” homes.

The value of the Mobile home is generally less than that of a Modular home.  Financing of such a home is not nearly as attractive as that of a Modular home.  There tends to be fewer lenders wiling to lend on a Modular home than a traditional “stick-built” home. However, those that do, typically offer comparable rates and fees to that of traditional homes.

We (under my “Community West Mortgage hat”) are one of those lenders who lend on Modular homes.  Why not call or e-mail me for more details?

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Buyers: Take the Leap of Faith & Reap These Benefits

A veteran buyer was looking at looking at some nice homes in Hollister.  There seemed to be a disconnect between their enthusiasm for the homes and making the comment to buy one of them.  It wasn’t that they didn’t qualify.  I had already pre-approved them for much more than they were looking at.  As we talked the light bulb came on!  The transition from their comfortable rent to a significantly higher payment was a quantum leap for them and it was hard to swallow – until…….

I sat them down and shared what many homeowners have learned over the years.  Your accountant can tell you what your new tax liability will be if you buy that tempting home.  In most cases the amount  you will be required to pay in income tax will DROP because of the larger amount paid toward interest and taxes.  Some of us have figured that it is better to reduce our income tax withholding from our paychecks each payday rather than get our refund in a lump sum (with no earned interest) at the end of the year. 

Here is their example:  Sales Price: $650,000; New VA Loan: $591,800; Total Principal, Interest, Taxes and Insurance: $4,210; Income Tax Deduction at a 26% tax bracket: $898/mth; Net “House Payment” after income tax deduction: $3,312. 

Same home, same terms but a house payment that feels like $3,312.  That made the difference.  They will simply need to take a new W4 form to their employers and have them reduce their withholdings by $898 so they will have that much more to take-home each month.  While they still make the actual payment of $4,210 the additional take-home pay makes the leap in house payment more palitable. 

They will break even at the end of the year: they won’t owe much income tax nor will they get much of a refund.  HOWEVER, they will have received their refund during the year to help offset their new, higher payment. 

Everybody was happy and moved forward with what they really wanted to do. 

I love solving problems for people!  Have you done this yet?

Buying Parents or Grandparents Home? Save on Property Tax.

A friend was in the process of buying his parents home when he asked me if there were any tax or insurance benefits resulting from this type of sale.  I startled him when I blurted out a quick ,”YES!”

Thanks to a little-known section of the California Constitution (Sec. 2 of Article X111) or, more commonly referred to as “Prop. 58” the sale or transfer of a principal residence between parents and children is NOT subject to reassessment. Translation: My friend could purchase his parents home and continue their low property taxes as his own.  The savings was huge!  With a sales price of $480,000 the taxes would have been $6,002/yr. but employing Prop. 58 the parents taxes: $1,876 became their son’s property taxes.  In this case that is a whopping $4,126/yr. savings!

Not only did my friend experience a monthly savings of $344 in property tax but he more easily qualified for his home loan.  He needed $905 LESS income to qualify because his Prin., Int., TAXES, & Ins. was so much lower.

There is a similar opportunity when grandparents are selling to grandchildren (Prop. 193).

Of course there are conditions but they are not difficult to satisfy.

So here is an opportunity to keep the good ole home in the family and bucks in the kid’s pocket.

2 Bonuses to Your Housing Budget

Greatly Reduce Your Homeowner’s Insurance Premium

Talk to homeowners and most will tell you they have never had a claim against their homeowner’s insurance.  So, their deductible remains low and their premium stays high.

We were in this group until one day we started talking about reducing our housing expenses.  We asked ourselves how much we could afford to pay should we have a claim.  The amount was higher than our homeowner’s deductible.  We called our insurance agent for a quote with a new, higher deductible.  WOW!  It was a big savings!  we sharpened the pencil and began shopping for insurance with a sizable deductible.   We ended up reducing our insurance premium by nearly $500 a year ($1,300 down to $820).  And guess what?  We still haven’t had a claim.

Get Your Tax Refund in Every Pay Check

Did you get an income tax refund this year?  Last year?  Why not get your refund in every paycheck?  Here’s how:  Ask your tax preparer what your actual tax liability is and divide that by the number of your pay periods (52, 26, 12 etc.).  Ask your preparer for a new W4 form.  Then stroll into your Human Resources office and announce that you want them to ONLY withhold $X for Fed. Taxes and $Y for State Taxes (the amount of your actual tax liability per pay period).  A few employers will allow you to withhold a percentage for Fed. and another for State.  Most will struggle with how many exemptions you have to claim to achieve the dollar amount.  Fill our your W4 and happily hand it over to HR.  No matter how they end up doing it you will bring home much more of your check every payday!  For example, if you got a $2,600 tax refund and get paid every week you could take home $50 MORE EVERY WEEK or $215 MORE EVERY MONTH!  At the end of the year you break even – you won’t owe any additional taxes and YOU have had your refund left in your pocket every payday during the year.  Pretty cool!  (Be sure to coordinate this with your tax preparer).

Let’s see, what could you do with another, say, $255 CASH each month?